Rethinking the meaning of ‘benefit’ – what does it mean?

“Lawyers make the process legalistic and expensive. They are also often responsible for delaying the proceedings due to their unavailability and the approach they adopt. Allowing legal representation places individual employees and small businesses at a disadvantage because of the cost.”

The background

In 2008, faced with a drop in business, Apollo Tyres (“the employer”) announced a scheme to reduce staff: monthly-paid staff between the ages of 46 and 59 could apply for early retirement. It meant that successful applicants would get two months’ pay in addition to normal retirement benefits plus an ex gratia payment depending on their age. However, entry into the scheme was subject to management’s discretion.

Mrs Hoosen (“the employee”), who was 49 years of age and had been with the company for 24 years, applied for the package. Her application was rejected. She wanted to know the reasons. After being referred back and forth from one manager to another she was informed, amongst other things, that employees had to be 55 years of age to qualify for the scheme.

By this time the employee had already handed in her notice. An attempt to appeal against the employer’s decision had failed. She then referred an unfair labour practice to the CCMA, alleging unfair conduct by the employer relating to benefits. In his judgment Acting Justice of Appeal Musi sums up what happened next:

“When the referral documents were served on the appellant, she was told to leave with immediate effect. So despicable was its conduct that a farewell party that was arranged for her was cancelled. That is not the way to treat an employee who has, by all accounts, given more than 24 years of dedicated and excellent service” (para 62 of judgment).

The central issue

The case raised a number of legal issues. The central issue, however, turned out to be that of jurisdiction. At the arbitration the employer argued that the early retirement package was not a “benefit” and, therefore, the CCMA did not have jurisdiction. The Commissioner rejected that argument and ruled in favour of the employee. The employer then took the award on review, but the Labour Court upheld the award. Undeterred, the employer appealed to the Labour Appeal Court on the issue “whether the early retirement scheme… for which Hoosen applied and was refused entry, constituted a benefit as contemplated in s 186(2) of the Labour Relations Act” (para 18 of judgment).

The employer had strong authority to support its argument. In the leading case of HOSPERSA & another v Northern Cape Provincial Administration (2000) 21 ILJ 1066 (LAC) the Labour Appeal Court had ruled that the term “benefit” was limited to benefits to which an employee is entitled as of right, either in terms of a contract of employment or a collective agreement or in terms of legislation. The provision in section 186(2)(a) was therefore limited to unfair conduct by an employer in the way that such rights were implemented.

On this approach Mrs Hoosen’s claim would have to fail because she had no contractual right to early retirement benefits. For the same reason she could bring no civil claim. It meant that the employer could do more or less what it pleased without regard to “fairness”.

Importantly, the court in HOSPERSA and most other cases also accepted that “benefit” is something different from “remuneration”. This means that claims relating to remuneration are by definition excluded from section 186(2)(a), even though the distinction between “remuneration” and “benefit” was not always easy to explain.

However, there was also authority suggesting something different. In Department of Justice v CCMA & others (2004) 25 ILJ 248 (LAC) it was held that the unfair labour practice provision places a duty on an employer not to act unfairly towards an employee in relation to the listed matters, including the provision of benefits. In other words, the employer is not required to act fairly only in relation to rights which the employee already has. But, since the matter dealt with promotion, the court was not called upon to consider the distinction between “remuneration” and “benefit”.

After carefully considering the issue, Acting Justice Musi on behalf of a unanimous court found that HOSPERSA (and judgments that followed it) had been wrongly decided and that the notion of “benefit” was broad enough to cover legal entitlements as well as benefits to which an employee is not entitled as of right; for example, discretionary benefits. This confirmed the approach adopted in Department of Justice v CCMA (above).

However, the court went on to reconsider the distinction between “remuneration” and “benefit”, and did so in a way which has important practical implications.

A ‘contractual’ remedy in the CCMA?

It has generally been assumed that the CCMA has no jurisdiction to arbitrate claims based on breach of the employment contract. This is so partly because the Labour Court is expressly given jurisdiction to do so and the CCMA is not. But it is also bound up with protection of the right to strike: since the right to strike is excluded over disputes which can be referred to arbitration, and since the CCMA has jurisdiction to arbitrate disputes about “benefits”, it was assumed that “remuneration” had to be kept separate from “benefits” in order not to limit the right to strike over claims regarding “remuneration”(i.e., wage claims).

The Labour Appeal Court in Apollo seems to have turned both these propositions on their head. Acting Justice Musi described the distinction between remuneration and benefits as “artificial and unsustainable”. “Remuneration”, he noted, is defined in the LRA as “any payment in money or in kind made or owing to any person in return for that person working for any other person, including the State”; and this definition, the court concluded, “is wide enough to include wages, salaries and most, if not all extras or benefits” (at para 25 of the judgment).

This has critical implications. If wages and salaries are “benefits”, then any “unfair conduct” by the employer relating to the “provision” of wages and salaries can be challenged in the CCMA in terms of section 186(2)(a). This could include situations such as the following:

Failure by the employer to give a wage increase that is contractually due (i.e., breach of contract);

Failure by the employer to give a wage increase that is reasonably expected;

Unfairly making deductions from wages, even where employees have consented to those deductions – for example, where one employee is exempted and another is not;

A unilateral pay cut by the employer (also breach of contract); or

“Underpayment”, e.g. by requiring an employee to perform duties beyond her job description and not paying her for it (again breach of contract).

It remains to be seen how cases of this nature, if and when they reach the CCMA, will be dealt with. What is clear, however, is that the existence of a contractual remedy does not exclude the operation of section 186(2)(a). In fact, there is much to be said for enabling employees to refer disputes such as those mentioned to the CCMA even if the “unfair” conduct amounts to breach of contract. This is so because very few employees could afford to pursue a claim in the High Court, the Labour Court or even the Magistrate’s Court to claim contractual damages. Leaving them with only a contractual remedy may amount to leaving them with no remedy at all.

Referring such a claim to the CCMA, moreover, would not only be affordable; the LRA also provides scope for a much more flexible remedy based on the facts of the case, including compensation that is “just and equitable in all the circumstances, but not more than the equivalent of 12 months remuneration” (section 194(4)).

What about the right to strike?

The Labour Appeal Court also considered the argument that a broader definition of “benefit” would limit the right to strike and showed that it is groundless. This is so because disputes can in many cases legitimately (as opposed to artificially) be categorised in different ways. Acting Justice Musi referred with approval to the reasoning of the Labour Court in an earlier decision:

“disputes over the provision of benefits may fall into two categories: firstly, where the dispute concerns a demand by employees that a benefit be granted or reinstated irrespective of whether the employer’s conduct in not agreeing to grant or in removing the benefit is considered to be unfair. This kind of dispute can be settled by way of industrial action. Secondly, the dispute may concern the fairness of the employer’s conduct. This kind of dispute may be settled by way of adjudication” (paragraph 28 of the judgment).

Thus, the mere fact that a dispute relating (say) to a wage cut could bereferred as an unfair labour practice dispute does not mean that it may only be referred as such and, therefore, that the right to strike is excluded. It will be open to a trade union to decide whether to refer it as a straightforward dispute of mutual interest which, if conciliation fails, would entitle the union to issue a strike notice and embark on industrial action. Alternatively, the trade union may refer it as an unfair labour practice dispute on the basis that the employer acted unfairly with regard to benefits (by unfairly reducing remuneration). If conciliation fails, the union’s claim would be arbitrated on its merits.

(Similarly, in disputes about organisational rights, unions have a choice between industrial action and the arbitration route.)

This also does not take away the right of the affected employees to sue the employer for breach of contract, though in practice this is unlikely.

As for the Apollo matter, the court found not only that the CCMA had jurisdiction to arbitrate the dispute but that Mrs Hoosen had been treated unfairly and was entitled to the benefit of the early retirement scheme. The employer was accordingly order to pay her two months’ salary plus the ex gratia payment in an amount of R123,637.22.